HANDBOOK ON THE SCHEME OF THE EUROPEAN COMMUNITY

Transcription

1 UNCTAD/ITCD/TB/Misc.25/Rev.2 Generalized ystem of Preferences HANDBOOK ON THE CHEME OF THE EUROPEAN COMMUNITY (INT/97/A06) UNCTAD Technical Cooperation Project on Market Access, Trade Laws and Preferences UNITED NATION New York and Geneva, December 2002

2 ii Note While every care has been taken to ensure that the information contained in this handbook is correct, no liability or claim may be made against the publisher. This document has no legal value. Only the Regulations published in the Official Journal (OJ) of the European Communities, which have been the major source in preparing this handbook, have legal value. The designations employed and the presentation of the material in this handbook do not imply the expression of any opinion whatsoever on the part of the ecretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries.

3 iii Contents Preface... Introduction... Checklist: How to benefit from the EC GP cheme... Part 1: Explanatory notes to the EC GP cheme v vii ixi xi A. Beneficiaries... xi B. Product coverage xi C. Depth of tariff cuts. xi D. Maintenance of previous preferential margins.. xii E. Country-sector graduation and country graduation xv F. pecial arrangements for the Least Developed Countries: The "Everything But Arms" Initiative xviii G. pecial arrangements supporting measures to combat drugs xx H. pecial incentive arrangements.. xxi I. Temporary withdrawal of the EC GP cheme xxvi J. uspension of the EC GP cheme xxvii K. Anti-dumping clause.. xxviii L. afeguards.. xxviii Part 2: Rules of origin under the EC GP cheme xxxi A. Preamble xxxi B. Origin criteria. xxxi C. Direct consignment conditions.. xxxix D. Documentary evidence.. xl E. Invoice declaration xliii F. Verification xliii

4 iv List of tables Table 1 ummary of the tariff cuts provided.. xii Table 2 Example of GP tariff calculation. xiii Table 3 Example of GP tariff calculation. xiii Table 4 Example of GP tariff calculation. xiii Table 5 Example of GP tariff calculation. xiv Table 6 Example of GP tariff calculation. xiv Table 7 Example of GP tariff calculation. xiv Table 8 Example of GP tariff calculation. xv Table 9 Example of GP tariff calculation. xv Table 10 Example of sector graduation xvii Table 11 Tariff quotas for rice and raw sugar from LDCs xix Table 12 ummary of the "Everything But Arms" (EBA) Initiative xx Table 13 Example of working or processing conferring origin xxxiii Annexes I. Council Regulation (EC) No 2501/2001, applying a multi annual scheme of generalized tariff preferences for the period 1 January 2002 to 31 December 2004 (OJ L 346, p. 1)... 3 II: Commission Regulation (EC) No 1602/2000 of 26 July 2000 amending Regulation (EEC) No 2454/93 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code (OJ L 188, , p. 1) III: Commission Regulation (EC) No 291/2002 of 15 February 2002 amending Regulation No 1613/2000 of 24 July 2000 derogating from Regulation (EEC) No 2454/93 in respect of the definition of the concept of originating products used for the purposes of the scheme of generalized preferences to take account of the special situation of Laos regarding certain exports of textiles to the Community (OJ L 46, of , p OJ L 185/2000, , p. 38) + Corrigendum (OJ L 216, , p. 20) IV. Commission Regulation (EC) No 292/2002 of 15 February 2002 amending Regulation No 1614/2000 of 24 July 2000 derogating from Regulation (EEC) No 2454/93 in respect of the definition of the concept of originating products used for the purposes of the scheme of generalized preferences to take account of the special situation of Cambodia regarding certain exports of textiles to the Community (OJ L 46, of , p OJ L 185/2000, , p. 46) + Corrigendum (OJ L 216, , p. 21) V. Commission Regulation (EC) No 293/2002 of 15 February 2002 amending Regulation No 1615/2000 of 24 July 2000 derogating from Regulation (EEC) No 2454/93 in respect of the definition of the concept of originating products used for the purposes of the scheme of generalized preferences to take account of the special situation of Nepal regarding certain exports of textiles to the Community (OJ L 46, of , p OJ L 185/2000, , p. 54) + Corrigendum (OJ L 216, , p. 22) VI. Council Decision of 5 December 2000 concerning the approval of an Agreement in form of an Exchange of Letters between the Community and each of the EFTA countries that grants tariff preferences under the GP (Norway and witzerland), providing that goods originating in Norway or witzerland shall be treated on their arrival on the customs territory of the Community as goods with content of Community origin (reciprocal agreement)(oj L38, , p. 24) and exchange of letters forming this Agreement (OJ L38, , p.25).. 245

5 v Preface This handbook is published under the auspices of the UNCTAD Technical Cooperation Project on Market Access, Trade Laws and Preferences (INT/97/A06). It is a part of a series of publications aimed at helping exporters, producers and government officials to utilize the trade opportunities available under the various GP schemes. The publication of this handbook has been made possible thanks to a contribution from the EC Commission. The series comprises the following publications: Publications in the Generalized ystem of Preferences series - Handbook on the cheme of Australia (UNCTAD/ITCD/TB/Misc.56) - Handbook on the cheme of the Bulgaria (UNCTAD/ITCD/TB/Misc.67) - Handbook on the cheme of Canada (UNCTAD/ITCD/TB/Misc.66) - Handbook on the cheme of the Czech Republic (UNCTAD/ITCD/TB/Misc.63) - Handbook on the cheme of the European Community (present volume) - Handbook on the cheme of Japan 2002/2003 (UNCTAD/ITCD/TB/Misc.42/Rev.1) - Handbook on the cheme of Hungary (UNCTAD/ITCD/TB/Misc.64) - Handbook on the cheme of New Zealand (UNCTAD/ITCD/TB/Misc.48) - Handbook on the cheme of Norway (UNCTAD/ITCD/TB/Misc.29) - Handbook on the cheme of Poland (UNCTAD/ITCD/TB/Misc.51) - Handbook on the cheme of witzerland (UNCTAD/ITCD/TB/Misc.28/Rev.1) - Handbook on the cheme of the lovak Republic (UNCTAD/ITCD/TB/Misc.50) - Handbook on the cheme of the UA (UNCTAD/ITCD/TB/Misc.58) - List of GP Beneficiaries (UNCTAD/ITCD/TB/Misc.62) - Rules of Origin in International Trade (UNCTAD/ITCD/TB/Misc. forthcoming) - Compendium on Rules of Origin - Part I (ITD/GP/31) - Digest of GP Beneficiaries (UNCTAD/ITCD/TB/Misc.62) - Trade Laws of the EC (forthcoming) - Trade Laws of the United tates (TAP/277) - Trade Laws of Japan (TAP/299) - Quantifying the Benefits Obtained by Developing Countries from the Generalized ystem of Preferences (UNCTAD/ITCD/TB/Misc.52) - Handbook on special provisions for LDCs (UNCTAD/ITCD/TB/Misc.73) For further information on the publications listed above, please contact the UNCTAD Technical Cooperation Project on Market Access, Trade Laws and Preferences (INT/97/A06): Tel.: Fax: gsp@unctad.org Note: ome of these publications are also available on the Internet:

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7 vii Introduction The first European Community Generalized ystem of Preferences scheme spanned an initial phase of 10 years ( ) and was subsequently renewed for a second decade ( ). During this period, the EC GP was reviewed each civil year. The regulations for the EC GP scheme were promulgated annually, usually in December, and applied for the next calendar year. The yearly reviews involved changes in product coverage, quotas, ceilings and their administration, beneficiaries and depth of tariff cuts for agricultural products. In 1991, at the end of the second decade, the scheme was due for major revision. However, pending the outcome of the Uruguay Round, the 1991 scheme was extended with various amendments until 1994, when the Community made another 10-year offer. On 1 January 1995 the Community adopted the first EC scheme of generalized preferences for the period. The basic legislative acts were Council Regulation 3281/94, 1 concerning industrial products, and Council Regulation 1256/96, 2 concerning agricultural products. For the period from 1 July 1999 to 31 December 2001, the EC revised its GP scheme on the basis of Council Regulation 2820/98. 3 However, until the end of 2001, the basic structure of the offer for the decade was not substantially modified. It revolved around three key features, namely tariff modulation, country-sector graduation and special incentive arrangements. Tariff modulation represented a radical departure from schemes adopted until 1994 whereby quantitative limitation of GP imports applied. These limitations, essentially individual fixed duty-free amounts and ceilings (concerning sensitive industrial products) and fixed reduced duty 4 amounts (concerning agricultural products) were then replaced by reduced rates of duty classified according to four categories of product sensitivity. The following GP reductions on the most-favoured-nation (MFN) rate were then applied: for very sensitive products, 15 per cent preferential margin; for sensitive products, 30 per cent preferential margin; for semi-sensitive products, 65 per cent preferential margin; for non-sensitive products, duty-free entry was granted, i.e. 100 per cent preferential margin. The second element was the introduction, in 1995, of an open policy of graduation, containing criteria for country-sector graduation. Regulation 3281/94 provided for a country graduation mechanism, which entered into force on 1 January 1998 and continued to apply under the scheme. Finally, a special incentive arrangement (to become operational on 1 January 1998) was also introduced. These special incentives were to be applied on the basis of an additional margin of preference granted to beneficiary countries complying with certain requirements related to labour standards and environmental norms Council Regulation No. 3281/94 of 19 December 1994 applying a four-year scheme of generalized tariff preferences ( ) in respect of certain industrial products originating in developing countries, OJ L 348, , p. 1. Council Regulation No. 1256/96 of 20 June 1996 applying multi annual schemes of generalized tariff preferences from 1 July 1996 to 30 June 1999 in respect of certain agricultural products originating in developing countries, OJ L 160, , p. 1. Council Regulation (EC) No 2820/98 of 21 December 1998, applying a multi annual scheme of generalized tariff preferences for the period 1 July 1999 to 31 December 2001 (OJ L 357, , p. 1). For the definition of fixed duty-free amounts and individual duty-free tariff ceilings, see UNCTAD document UNCTAD/ITD/GP/9, July 1994.

8 viii The successive amendments to the EC schemes in favour of LDCs beneficiary countries and the new GP regulation for the period have caused a substantial modification of the above-mentioned elements. As of 5 March 2001, the Everything But Arms (EBA) 6 amendment entered into force, granting unrestricted duty-free access to all products originating in least developed beneficiary countries, excluding arms. Only for three very sensitive products, namely bananas, rice and sugar, will the liberalization be carried out over specific transitional periods. In January 2002, a new GP regulation entered into force for the period This regulation, which fully incorporates the EBA amendment, is specifically designed to simplify the structure of the GP regime. Finally, no changes have been made in the field of rules of origin. Thus, for the purpose of the EC GP scheme, the requirements for origin determination applicable to all products and sources continue to be those laid down in Commission Regulation (EEC) No 2454/93 of 2 July 1993, which specifies provisions for the implementation of Council Regulation No 2913/92 establishing the European Community Custom Code (ECCC), as last modified by Commission Regulation No 1602/ (see annex II of this handbook) Council Regulation (EC) No 2501/2001 of 10 December 2001 applying a scheme of generalized tariff preferences for the period from 1 January 2002 to 31 December 2004, OJ L346, p. 1. Council Regulation (EC) No 416/2001, of 1 March 2001, extending duty-free access without quantitative restriction to products originating in least developed countries, OJ L60, p. 43. Commission Regulation (EC) No 1602/2000 of 24 July 2000 amending Regulation (EEC) No 2454/93 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code.

9 ix Checklist: how to benefit from the EC GP scheme tep 1: Check the product coverage Establish the tariff classification of the product according to the Combined Nomenclature; Ascertain that the product is covered by the EC GP scheme; Check the country-sector graduation, since certain sectors of certain countries are excluded from the EC GP scheme (see annex I of Regulation 2501/2001 as contained in annex I of this handbook). tep 2: Identify the correct GP rate Check annex IV of Regulation 2501/2001 (contained in annex I of this handbook) to ascertain the product sensitivity category in which the product is listed (sensitive or nonsensitive), observing the precise tariff classification and product description; Identify the conventional MFN rate which applies to the product in the EC Customs Code (TARIC); 8 Check the composition of the duty, i.e. whether it is made of ad valorem or of a specific duty or a combination of the two, as the GP tariff reduction has to be calculated on one of these duty components only and not together; Apply the reduction granted to the product category in which the H product is listed, taking into account that for a limited number of products (H Chapters 50 to 63 and H Heading 2207) a lower preferential margin applies. tep 3: Investigate the possibility of obtaining additional preferences pecial treatment is granted to the least developed countries under the Everything But Arms amendment, and to the Andean Group and the Central American Common Market under the special arrangement supporting measures to combat drugs; pecial incentive arrangements may be granted for beneficiaries that respect international standards and meet environmental concerns (note that these incentives are not automatic). tep 4: Check the origin criteria Ensure that the product complies with the origin criteria set by the EC. 8 Taric is the integrated tariff of the European Community, published annually. It is based on the Combined Nomenclature (CN) which has some 10,000 headings (coded with eight digits) and constitutes the basic nomenclature for the Common Customs Tariff as well as for trade statistics. Taric contains around 18,000 further subdivisions (coded with two extra digits or with an additional code) necessitated by tariff quotas, tariff preferences, the GP, agricultural components, anti-dumping and countervailing duties, etc. For Taric consultations see website

10 x tep 5: Check the consignment conditions Ensure that the modalities governing the transport of goods from the preferencereceiving country to the EC market fulfil the provisions laid down in the EC Regulations. tep 6: Prepare documentary evidence Fill in the certificate of origin Form A or the invoice declaration correctly; they are the official documents on which the EC customs authorities rely to grant GP benefits to products.

11 xi A. Beneficiaries Part 1 EPLANATORY NOTE TO THE EC GP CHEME The granting of the EC generalized tariff preferences for the period from 1 January 2002 to 31 December 2004 is restricted to the countries and territories listed in annex I to Council Regulation 2501/2001 (hereinafter the Regulation), which is reproduced in annex I to this handbook. B. Product coverage The Regulation contains rules for both industrial and agricultural products. A great number of agricultural products falling within H Chapters 1-25, and almost all processed and semi-processed industrial products, as well as ferro-alloys, falling within H Chapters 25-97, excluding Chapter 93, are covered by the EC scheme. The list of products covered and treatment applied is contained in annex IV to the Regulation (attached). C. Depth of tariff cuts The current scheme largely simplifies the previous system, since besides maintaining duty-free access for all non-sensitive products (as before), 9 it replaces the three categories of very sensitive, sensitive and semi-sensitive products by just one single category of sensitive products. To the products belonging to this category, the new GP rate is calculated by applying: A flat rate reduction of 3.5 percentage points to the MFN duty, in the case of ad valorem duties; or a 30 per cent reduction to the MFN duty in the sole presence of specific duties. Limited exceptions apply for: Textiles and clothing (products of H Chapters 50-63), whose MFN duties shall be reduced by 20 per cent; Ethyl alcohol (H heading 2207), whose MFN duties shall be reduced by 15 per cent. ave as otherwise provided in the annexes to the Regulation, with respect to products falling within Chapters 1 to 24 (agricultural products), wherever customs duties comprise an ad valorem duty plus one or more specific duties, the preferential reduction is limited to the ad valorem duty. Where the customs duties specify a maximum duty, that maximum duty shall not be reduced. Conversely, if the customs duties specify a minimum duty, that minimum duty shall not apply. Finally, where they comprise more than one specific duty, the preferential reduction applies to all of these. 9 For non-sensitive products, duties shall be entirely suspended except for the agricultural components (article 7 of the Regulation).

12 xii D. Maintenance of previous preferential margins Given the fact that the current formulae to calculate preferential margins might have resulted, for a certain number of products, in a less favourable treatment vis-à-vis the previously utilized formulae, 10 the Regulation provides (article 7, paragraph 3) that previous preferential rates shall continue to apply as long as they provide for a preferential duty higher than 3.5 percentage points. In other words, the preferential rate applicable is the best rate available between the two regulations. Table 1 ummary of the tariff cuts provided PREVIOU REGULATION CURRT REGULATION Lists of products Tariff treatment Lists of products Tariff treatment 1. Very sensitive products 2. ensitive products 3. emi-sensitive products 4. Non-sensitive products 15% preferential margin 30% preferential margin 65% preferential margin 100% preferential margin (i.e. duty-free entry) 1. ensitive products 2. Non-sensitive products Flat rate reduction of 3.5 percentage points the MFN duty, in the case of on ad valorem duties only 30% reduction for the MFN duty in the sole presence of specific duties 20% reduction for textiles and clothing 15% reduction for ethyl alcohol Duty-free entry When checking for possible preferences, it is important for the GP user to determine correctly the customs classification for his/her products according to the CN. Once this has been done, the user should check whether the CN subheading in which the product is classified is contained in the list in annex I, and then calculate the applicable tariff reduction accordingly Article 2 of Council Regulation No 2820/98. Under article 13 of the Regulation, the final rate of preferential duty calculated in accordance with the modulation system shall be rounded down to the first decimal place. Furthermore, when the result of calculating the rate of preferential duty is one of the following, the preferential rate shall be considered a full exemption: 1 per cent or less in the case of ad valorem duties, or 2 EUR or less per individual euro amount in the case of specific duties.

13 xiii EAMPLE OF GP TARIFF CALCULATION 12 In the case of Other fish meat: of hake of genus Merluccius, which is on the list of sensitive products, the calculation is as follows: Table 2 Example of GP tariff calculation CN CODE PRODUCT DECRIPTION 2002 MFN RATE TARIFF REDUCTION Other fish meat, frozen: of 7.5% 3.5 hake of the genus Merluccius percentage points 2002 GP RATE 4.0% In the case of weet potatoes: Other ", which is also on the list of sensitive products and whose duty is only specific, the calculation of the GP rate is as follows: Table 3 Example of GP tariff calculation CN CODE PRODUCT DECRIPTION 2002 MFN RATE TARIFF REDUCTION 2002 GP RATE weet potatoes: Other 6.4 EUR / 100 kg 30% 4.4 EUR/100 kg In the case of Couscous: other", which is also on the list of sensitive products, and whose duty is a composed one, the GP rate is calculated as follows: Table 4 Example of GP Tariff calculation CN CODE PRODUCT DECRIPTION 2002 MFN RATE TARIFF REDUCTION Couscous: other 6.4% EUR/100 kg 3.5 Percentage points (ad valorem part only) 2002 GP RATE 2.9% EUR/100 kg In the case of Other beans, which is on the list of sensitive products, and incorporates a minimum duty, the calculation is as follows: 12 For TARIC consultations see website

14 xiv Table 5 Example of GP tariff calculation CN CODE PRODUCT DECRIPTION Other beans (fresh or chilled) 2002 MFN RATE TARIFF REDUCTION 10.4% 3.5 MIN 1.6 EUR/100 kg Percentage points 2002 GP RATE 6.9% (MIN does not apply) In the case of Tobacco, not stemmed/stripped (Flue-cured Virginia type), which is on the list of sensitive products, and incorporates a maximum and a minimum duty, the calculation is as follows: Table 6 Example of GP tariff calculation CN CODE PRODUCT DECRIPTION Tobacco, not stemmed/stripped (Flue-cured Virginia type) 2002 MFN RATE TARIFF REDUCTION 18.4% 3.5 MIN 22 EUR/100 kg percentage points MA 24 EUR/100 kg 2002 GP RATE 14.9% MA 24 EUR/100 kg (MA applies; MIN does not apply) In the case of "Men's or boys' shirts, knitted or crocheted: of cotton, as is the case for every other products falling under Chapters 50 to 63 of the CN, the GP tariff cut is 20 per cent of the MFN rate. Table 7 Example of GP tariff calculation CN CODE PRODUCT DECRIPTION Men's or boys' shirts, knitted or crocheted: of cotton 2002 MFN RATE TARIFF REDUCTION 12% 20% Reduction 2002 GP RATE 9.6% In the case of Ethyl alcohol and other spirits, denatured, of any strength: other, which falls under heading 2207 of the CN, the GP tariff cut is equal to 15 per cent of the MFN rate.

15 xv Table 8 Example of GP tariff calculation CN CODE PRODUCT DECRIPTION Ethyl alcohol and other spirits, denatured, of any strength: other 2002 MFN RATE TARIFF REDUCTION 10.2 EUR / hl 15% Reduction 2002 GP RATE 8.6 EUR / hl Finally, as long as the old formulae provide for higher preferential tariff cuts, the applicable GP rate remains the previous one. For example, in the case of Tobacco, not stemmed/stripped (Flue-cured Virginia type), which is on the list of sensitive products and incorporates a maximum and a minimum duty, the calculation is as follows: Table 9 Example of GP tariff calculation CN CODE PRODUCT DECRIPTION Cigars, cheroots and cigarillos, containing tobacco 2002 MFN RATE CURRT TARIFF REDUCTION 26% 3.5 percentage points = GP rate of 22.5% PREVIOU TARIFF REDUCTIO N 65% Tariff reduction = GP rate of 9.1% APPLICAB LE 2002 GP RATE 9.1% E. Country-sector graduation and country graduation Country-sector and/or country graduation means that in respect of some industrial and agricultural products of certain countries, or in respect of a specific country, the GP treatment can be withdrawn. Countries and/or sectors will only be withdrawn from preferences after meeting the parameters for three consecutive years, thus providing beneficiary countries with some "early warning" mechanisms before any graduation action is actually undertaken by the EU. For the first time, the Regulation contemplates also the possibility of the "reversibility" of the graduation system in the sense that GP preferences can be reintroduced for a graduated country-sector and/or country. For this to happen, the same parameters that led to the graduation action for a certain country-sector and/or a country shall not be met for a similar period of time (i.e. three years). 13 The first decision regarding the new procedure for graduation adopted by the Regulation will enter into force on 1 January 2003 (see Article 3 (6) and 12(6) of the Regulation), which means that for 2002 the list of country-sectors graduated and the number of countries excluded from the list of GP beneficiaries remains that of ee article 12 of the Regulation.

16 xvi 1. Country-sector gradutation The application of the country-sector graduation is based on certain criteria 14 against which determining graduation elaborated by the EC is laid down in article 12 and annex II of the Regulation. 15 These criteria combine on the one hand: A development index of the beneficiary country, calculated on the basis of a country s per capita income and the level of its exports, as compared with those of the Community. According to the Regulation (article 12), the necessary level towards sector graduation is an index higher than 2; and on the other hand, either one of the followings: A level of imports from that country of all products of the sector concerned exceeding 25 per cent of imports of the same products from all beneficiary countries (lion's share clause); or A sector specialization index exceeding the threshold corresponding to that country's development index (as defined in annex II of the Regulation). The specialization index is based on the ratio of a beneficiary country s share of total European Community imports in a given sector to its share of total European Community imports in all sectors. The larger the sectoral proportion compared with the general proportion, the greater the specialization. The combination of two variables, the development index plus one of the other two criteria (the lion's share or the specialization index), is intended to avoid the crude effect of export specialization, according to which a low-income country may be graduated from a sector in which it is particularly specialized. A de minimis clause is provided for in the same article 12 (paragraph 1 (b)), of the Regulation. According to this clause, the graduation mechanism does not apply to countries whose exports to the Community of products covered by the scheme in a given sector did not exceed 2 per cent of beneficiary countries exports to the Community in that sector in the statistical reference year of the previous scheme. An excerpt from annex I of the Regulation, which contains the list of country/sectors to be graduated, is given below These criteria were originally based on Regulation 3281/94. ee annex I of this Handbook.

17 xvii Table 10 Example of sector graduation CN CODE DECRIPTION OF GOOD COUNTRIE CONCERNED Chapters Mineral products audi Arabia Russian Federation Libyan Arab Jamahiriya Chapters and Chapters Chemicals excluding fertilizers China The excerpt shows that mineral products falling in Chapters and originating in audi Arabia, the Russian Federation and the Libyan Arab Jamahiriya are excluded from GP treatment. The same applies to products originating in China and classified in Chapters and (see annex I of the Regulation, Column D, as reported in annex I of this Handbook, for the full list of the graduated country sectors). 2. Country graduation mechanism Article 3, paragraph 1 of the Regulation, provides that the most advanced beneficiary countries shall be removed from the list of beneficiary countries and territories in annex I of this Regulation if, for three consecutive years, they meet both of the following criteria: The country is classified by the World Bank as a high-income country (i.e. a per capita gross national product exceeding U$ for 1999, according to the most recent World Bank figures 16 ); A development index, calculated in accordance with the formula and figures given in annex II, greater than -1. These criteria apply cumulatively. As an example, the EC Council decided to withdraw the most advanced of the GP beneficiaries, namely Hong Kong (China), ingapore and the Republic of Korea, from the list of preference-receiving countries) as of May 1998 (article 3 of Regulation 2623/97, OJ L 354, , p. 9). 3. Common provisions for country-sector and country graduation The provisions for graduation, for both country-sector and country, will be regularly monitored by the Commission and applied once a year, starting in January, on the basis of the most recent information available on 1 eptember of each year. 17 The Commission s screening, which will also take place in eptember every year, will be made public so as to provide beneficiary countries with some early warning. In the example given above, the Libyan Arab Jamahiriya and China were (and still are for the reason given above) excluded from GP treatment for the products mentioned because of the application of the lion's share clause: the exports to the Community of products covered by the scheme in this sector (mineral) exceeded 25 per cent of all GP beneficiary countries exports to the EC. However, while in the previous Regulation the lion's share clause applied irrespective of the Year Before the end of each year, the Commission will decide the graduation in accordance with the procedure referred to in Article 5 and 7 of Decision 1999/468/EC. The period laid down in Article 5(6) of the mentioned Decision is set at three months.

18 xviii development index, under the current Regulation (and in line with the other criteria), it is now the combination of the lion' share clause with the development index, that together determine graduation. Finally, and as aforementioned, where the criteria for either country-sector or country graduation have not been met for three consecutive years, the country-sector graduated or the country which had been removed from GP preferences shall again be included in annex I. F. pecial arrangements for the least developed countries: the Everything But Arms Initiative Under the special treatment granted to least developed beneficiaries, the Regulation fully incorporates the Everything But Arms (EBA) initiative (Regulation 416/ amending Regulation 2802/98), which entered into force on 5 March Before the EBA, and in accordance to article 6 of the previous GP scheme Regulation (2802/98), the least developed countries (LDCs) were granted duty-free access on a list of selected products, whereas for other products the Common Customs Tariff continued to be reduced in accordance with the modulation mechanism. 19 The 2001 EBA, as currently incorporated in the Regulation (ection 3), extends duty-quota-free access to all products originating in LDCs, except for arms and ammunition falling within H Chapter The EBA coverage now includes all agricultural products, adding such sensitive products as beef and other meat; dairy products; fruit and vegetables; processed fruit and vegetables; maize and other cereals; starch; oils; processed sugar products; cocoa products; pasta; and alcoholic beverages. On most of these products, the pre-eba GP used to provide a percentage reduction of MFN rates, which would apply only to the ad valorem duties, thus leaving the specific duties still entirely applicable. This is no longer the case. The relevant provision, as contained in Article 9, paragraph 1, of the Regulation, states that Customs Tariffs on all products of Chapters 1 to 97 (except those of 93) are now entirely suspended. Thus, specific and other duties, for example the rather complicated entry price system used to regulate access to the EC market of certain fruit and vegetables, such as cucumbers and courgettes, are not longer applicable to LDCs' exports Council Regulation (EC) No 416/2001 of 28 February 2001 amending Regulation (EC) No 2820/98 of 21 December 1998 applying a multi annual scheme of generalized tariff preferences for the period 1 July 1999 to 31 December 2001 so as to extend duty-free access without any quantitative restrictions to products originating in the least developed countries (OJ L 60, , p. 43). Although Council Regulation 602/98, 19 extending product coverage for LDCs under the GP, aimed at granting least developed countries not party to the Lomé IV Convention preferences equivalent to those enjoyed by signatories, market access conditions for ACP LDCs were, most of the time, still more favourable than the ones for non-acp LDCs under the GP. In fact, several sensitive agricultural concessions granted under Lomé/Cotonou special protocols and quotas would only apply to a few ACPs, and not to non-acp LDCs. It should be noted that products of Chapter 93 are excluded from the EC GP product coverage for all beneficiaries. ee annex IV of the Regulation reporting the list of products covered by the scheme.

19 xix Under the EBA, only three most sensitive agricultural products are not subject to immediate liberalization: Fresh bananas (CN code ) The EBA provides for full liberalization between 1 January 2002 and 1 January 2006 by reducing the full EC tariff by 20 per cent every year. 21 Rice (H 1006) Customs duties on rice will be phased out between 1 eptember 2006 and 1 eptember 2009 by gradually reducing the full EU tariff to zero. During the interim period, in order to provide effective market access, LDC rice will be allowed to enter the EC market duty-free within the limits of a tariff quota. The initial quantities of this quota are based on best LDC export levels to the EU in the past years, plus 15 per cent. The quota will grow by 15 per cent every year from 2,517 tons (husked-rice equivalent) in 2001/2002 to 6,696 tons in 2008/2009 (the marketing year starts in eptember and finishes in August of the following year). ugar (H 1701) Full liberalization will be phased in between 1 July 2006 and 1 July 2009 by gradually reducing the full EU tariff to zero. In the meantime, as for rice, LDC raw sugar can come in duty-free within the limits of a tariff quota, which will grow by 15 per cent every year: from 74,185 tons (white-sugar equivalent) in 2001/2002 to 197,355 tons in 2008/2009 (July to June marketing year). Imports of sugar under the ACP-EC ugar Protocol will be excluded from the above calculations so as to uphold the viability of this protocol. Table 11 Tariff quotas for rice and raw sugar from LDCs Time period Products "EU import 000 tons" "EU import 000 tons" "EU import 000 tons" "EU import 000 tons" "EU import 000 tons" "EU import 000 tons" "EU import 000 tons" "EU import 000 tons" Rice (1) ugar (2) (1) Marketing years: eptember 2001 to eptember (2) Marketing years: July 2001 to July The Commission, in cooperation with Member tates, will monitor the imports of rice, bananas and sugar from LDCs. Taking into account the fact that under the Cotonou Agreement products covered by the Common Agriculture Policy (CAP) still face customs duties, the EBA has made the EC GP for LDCs a more favourable scheme in terms of tariff treatment and product coverage than the preferential trade arrangement available under the Cotonou Agreement. The EBA does not include any amendment to existing EC preferential rules of origin applicable to GP imports, 22 as contained in Regulation 1602/ For year 2002 the applicable GP-LDC rate is 544 EUR/1000kg (i.e. 80 per cent of the MFN duty of 680 EUR/1,000 kg). The Commission stressed that there was no need to tighten origin requirements and that the establishment of rules of origin specifically for LDCs would be inconsistent with EC efforts to harmone and simplify the various sets of rules of origin in force under the different trade arrangements entered into by the Community. OJ L 188, ee Annex II of this Handbook.

20 xx An important implication for least developed countries deriving from the future implementation of the EBA initiative is linked to the different cumulation systems available under the GP and under the Cotonou Agreement. On the one hand, if an ACP LDC desires to take advantage of the EBA duty-quota-free treatment, it will have to do so as a GP beneficiary and thus it will lose the opportunity of fully cumulating with its ACP partners an opportunity that is only available to a party to the Cotonou Agreement. On the other hand, if an ACP LDC wants to take advantage of the more favourable Cotonou cumulation system, it will have to face the Cotonou customs duties and quantitative limitations where applicable. imilarly, LDCs will have to bear in mind that since the EBA initiative is an integral part of the EC GP scheme, such duty-quota-free treatment will be subject to all the disciplines and various limitations of the scheme, such as the unilateral and unbound character of the GP, the possibility of temporary withdrawal of the preferences (reinforced by the EBA proposal itself) and its rules of origin. Table 12 ummary of "the Everything but Arms" (EBA) initiative PRODUCT COVERAGE DEPTH OF TARIFF CUT RULE OF ORIGIN PRE- EBA All GP covered products Additional list of products for LDCs only Certain sensitive agricultural products excluded Duty-free for all GP covered products For the additional list of products, different tariff cuts available according to the import sensitivity of products (four products categories) No preferences on the specific component of MFN duties, on entry price, on the agricultural component and on other duties Regulation 1602/2000 EBA All products but arms (H Ch. 93) Duty-free for all products All duties entirely Delayed (phased-in period) liberalization for bananas, sugar and rice Regulation 1602/2000 but ACP LDCs moving into EBA may lose ACP cumulation G. pecial arrangements supporting measures to combat drugs Under article 10 of the Regulation, for the countries listed in column I of annex I (Andean Group: Bolivia, Colombia, Ecuador, Peru and Venezuela; and Central American Common Market: Costa Rica, El alvador, Guatemala, Honduras, Nicaragua and Panama), which are undertaking effective programmes to combat drug production and trafficking, the ad valorem Common Customs Tariffs for products listed in column D of annex IV are entirely suspended. The suspension also includes specific duties (article 10, paragraph 2). However, when the duty is composed of an ad valorem and a specific component, the suspension of the duty is only applicable to the first component. Limited exceptions to this preferential treatment relate to CN code (shrimps and prawns) for which the relevant rate should be reduced to a rate of 3.6%, and CN code and (chewing gum: gum in strips, and other chewing gum respectively) whereby the specific duty shall be limited to 16 per cent of the customs value.

21 xxi The effects of this special arrangement will be monitored and evaluated for each beneficiary country in accordance with the procedures laid down in article 25, paragraphs 1 and 2, of the Regulation. It is worth noting that, under the previous regulation, the Generalized Preferences Committee would only examine, on the basis of an annual report from the Commission, the effects of the special arrangements with regard to the progress made by the beneficiary countries concerned in the fight against drugs. Wherever the process was considered to be insufficient, the Commission examined any measures worth undertaking, including the possibility of suspending, after consultations with the country concerned, the special support arrangements in whole or in part. 24 In the current Regulation, in addition to these effects, the Commission will now also assess the beneficiary countries' social development and environment policy. 25 The evaluation of the results achieved will not affect the continuation of this special arrangement until the end of However, the findings of the evaluation will be taken into account when establishing guidelines for the GP scheme after H. pecial incentive arrangements Title III of the Regulation (articles 14 to 24) provides for special incentive arrangements concerning labour rights and environmental protection. These arrangements were introduced in 1998, but they have now been largely reviewed in order to provide them with more favourable preferential tariffs cuts, thus rendering the new special incentive arrangements more attractive to beneficiary countries than they were before. The relevant terms and conditions of these arrangements are laid down in article 8 of the Regulation. The special incentives operate on the basis of an additional preferential margin (in addition to that provided to all beneficiaries under article 7), which is granted to selected beneficiary countries complying with certain requirements related to labour standards and the environment. This special treatment is available to beneficiary countries even in those sectors affected by graduation. 26 In this case, however, the applicable GP rates are those available to "normal" GP beneficiaries (i.e. the general tariff cuts available under article 7 only). 27 The special incentives arrangements are not automatic and need to be requested by the beneficiary country complying with certain requirements. More specifically, the incentives for labour rights, which apply to all products listed in annex IV, can be granted only to countries which request them in writing and provide proof that they have adopted and applied in their national legislation the substance of the standards elaborated by the International Labour Organization (ILO) Conventions Nos 29 and 105 on forced labour, Article 31 paragraph 3 of EC Regulation No 2820/98 of 21 December 1998, O.J. L The Commission will assess respect for and promotion of the standards laid down in the ILO Conventions referred to the ILO Declaration on Fundamentals Principles and Rights at work and the sustainable management of the tropical forests (Article 25, paragraph 2, of the Regulation). 26 However, the special incentive arrangements are not applicable to sectors, which according to column C of annex I, are not included in the general arrangements for the country of origin concerned. 27 In the previous regulation the application of the additional reduction as provided for by the special arrangements was not available for those sectors subject to the ancillary or lion's share graduation clause (i.e. the 25 per cent share of total imports of a certain sector), as these sectors were excluded for reasons of competitive capacity irrespective of the level of development of the country concerned (article 10, paragraph 4, of EC Regulation No 2820/98). The current graduation mechanism, however, has linked the development index to all clauses (including the lion's share one) towards determining graduation. Therefore the special arrangements can now apply to all graduated sectors irrespective of the clause utilized for their graduation. The tariff treatment provided is, however, the normal GP rate.

22 xxii Nos 87 and 98 concerning the application of the principles of the right to organize and bargain collectively, Nos 100 and 111 on non-discrimination in respect to employment and occupation, and Nos 138 and 182 concerning the minimum age for admission to employment (child labour). 28 The incentives for environmental protection apply only to the products originating in the tropical forest listed in annex IV (column G), and may be granted to GP beneficiary countries that request them and provide proof that they apply legislation incorporating the substance of the standards of the International acknowledged standards and guidelines concerning sustainable management of tropical forests (article 21, paragraph 2, of the Regulation). Requests for application of the incentive arrangements are subject to a detailed procedure, which is analysed below. 1. The depth of tariffs cuts provided by these special arrangements The current Regulation largely simplifies the way additional tariffs reduction is determined for products originating in beneficiary countries complying with the above-mentioned social and environmental standards (as set out in annex I, column E and G respectively) as the same calculus is now applicable to both agriculture and industrial products. According to article 8, paragraphs 2 to 4, of the Regulation, the further preferential duty reductions, are as follows: (a) (b) (c) (d) An extra 5 percentage points reduction of the ad valorem duty on products to which a 3.5 percentage point reduction is already granted by this Regulation (i.e. total reduction of 8.5 percentage points: ); A similar amount of reduction of the specific duty to double the tariff reductions provided to products whose duties included a specific component (i.e. total reduction 60% = 30% + 30%), to products falling under Chapters 50 to 63 (i.e. total reduction of 40% = 20% + 20%) and to those under CN code 2207 (i.e. total 30% = 15% + 15%); An additional amount of tariff reduction to provide a total tariff cut of 8.5 percentage points for those products to which the application of the previous regulation (EC No 2820/98) provides for higher than 3.5 preferential tariff cuts (as given by current Regulation). In addition, where the preferential rates calculated according to the previous Regulation result in a preferential tariffs cut of more than 8.5 percentage points, these rates shall continue to apply as long as they are higher than 8.5 percentage points; A further reduction in accordance with (a), (b) and (c) above for those products meeting both the social and environmental standards. This means that the duty reductions provided under the special incentive arrangements to protect labour rights and those to protect the environment can be accumulated and added to each other. For example, for products referred to in (a), the overall duty reduction would be 13.5 percentage points ( = 13.5). 28 ome of these ILO Conventions, in particular Nos 29, 105, 100, 111 and 182, did not appear in the previous Regulation (EC Regulation No 2820/98).

23 xxiii 2. Procedure for granting the special incentive arrangements concerning labour rights Under article 15, in order to take advantage of the special arrangements for their originating products, as specified in article 8, beneficiary countries authorities have to apply to the EC Commission in writing, giving details of: Their national legislation incorporating the substance of the standards laid down in ILO Conventions Nos 29, 87, 98, 100, 105, 111, 138 and 182; the full text of such legislation must be attached, together with an official translation into one of the official languages of the Community; The measures taken to implement and monitor these provisions effectively, any sectoral restrictions on their application, any breaches observed and a breakdown of such breaches by production sector; A commitment by the Government of the country in question to take full responsibility for monitoring the application of the special arrangements and the relevant administrative cooperation procedures. Requests for application are subject to a publication procedure enabling interested parties (any natural or legal person) to make their views known (article 16, paragraph 1). The Commission will examine the requests submitted by the beneficiary countries and, depending on their content, may (article 16): Put any further questions which it considers relevant; eek whatever information it considers necessary; Check this information, where appropriate, with any of the interested parties that may have taken part in the procedure; Carry out checks in requesting beneficiary countries to verify all or part of the information gathered. The authorities of beneficiary countries involved in the procedure are invited to cooperate in these investigations. The Commission is required to complete this examination within a period of one year starting from the date of receipt of the request. The deadline may be extended if necessary. The Commission will then decide, in accordance with the procedure of article 38 of the Regulation, to: Grant the special incentive arrangements to products originating in the requesting country, either in all sectors or only in those where the relevant legislation has been applied; or Not to grant the special incentive arrangements to that country or to that sector, if it considers that the requesting country s legislation does not satisfy the required conditions. If the Commission decides not to grant the special incentives arrangements to a country or to exclude some sectors, the notification must explain the reasons for its decision, if so requested by the applicant country. Applicant countries are notified by the Commission of the decisions taken and of the date on which they entry into force.

24 xxiv The Republic of Moldova is the first, and to date 29 the only beneficiary country, that has been granted the benefit of the special incentive arrangements concerning labour rights referred to in Article 14 of the Regulation Monitoring procedure and administrative cooperation methods for the special incentive arrangements concerning labour rights Products entitled to the special incentive arrangements are admitted under the arrangements contained in article 8 from the date of entry into force of the Commission's decision and on presentation of a statement by the beneficiary's competent authorities, duly identified during appraisal of the request, certifying that the products in question and their components have been manufactured in that country, or in a country entitled to regional cumulation (see article 72 of the European Community Customs Code, and Part 2 of this handbook on the EC GP rules of origin). The statement must take the following form, as appropriate: "ILO Conventions No 29, No 87, No 98, No 100, No 105, No 111, No 138, No Title III, ection I of Council Regulation (EC) No 2501/2001", and must be entered in box 4 of the certificate of origin Form A or on the invoice declaration (see Part 2, section D on documentary evidence, of this handbook). The statement must be validated by a stamp of the competent beneficiary country authorities (article 19, paragraph 1). In the case of the products referred to in article 12 (i.e. graduated), the documentary evidence is only valid in respect of the "general" tariff preferences as referred to in article 7 (article 8, paragraph 6). For further provisions on the monitoring procedure and administrative cooperation methods for the special incentive arrangements concerning labour rights, see article 20 of the Regulation (annex I of this handbook). 4. Procedure for granting the special incentive arrangements concerning environmental protection The same duty reductions specified in article 8 above apply to the products originating in tropical forest listed in column (E), annex IV of the Regulation, on condition that the authorities of the beneficiary countries concerned have applied to the Commission in writing, giving details of (article 22, paragraph 2): Their national legislation incorporating the substance of the standards of the Internationally acknowledged standards and guidelines concerning sustainable management of tropical forests; Any forest management certification system, where such a system is used by the country; The measures taken to implement that legislation; and A commitment by the country to maintain the relevant legislation. The full text of such legislation must be attached, together with an authentic translation into one of the Community languages. Requests for application are subject to a publication procedure enabling interested parties (any natural or legal person) to make their views known (article 16, paragraph 2) June ee Commission Regulation (EC) No 1649/2000 of 25 July 2000 (L189, , p. 13).